Doubts about Twitter’s future send stock to new lows

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Trader Steven Kaplan, right, works at the post that handles Twitter, on the floor of the New York Stock Exchange, Wednesday, April 30, 2014. Shares of Twitter dropped in morning trading Wednesday to their lowest point since the company went public in November. Investor concern remains over the short messaging service's ability to keep adding users and keep existing users engaged. (AP Photo)

SAN FRANCISCO — Twitter tumbled to its lowest stock price as a publicly traded company Wednesday, after investors and analysts parsed the social network’s latest quarterly performance report and emerged with doubts about the company’s ability to grow.

Shares sold for as low as $37.24 Wednesday, a 12.6 percent plunge from Tuesday’s closing price and the closest Twitter stock has come to the company’s $26 IPO price since going public in November 2013. Shares closed at $38.97, an 8.6 percent daily drop that adds to a long downward trajectory for Twitter, which had already lost more than 40 percent of its peak market capitalization of more than $42 billion.

Wednesday’s weakness stemmed from the San Francisco microblogging service’s report on first-quarter financial performance, which showed that Twitter again sustained heavy losses: The company claimed a net loss of $132.4 million, or 23 cents a share, on sales of $250.5 million in the first three months of the year.

That financial performance was actually better than analysts expected. The part of the report that seemed to garner the most attention was Twitter’s user base, which is suffering from slowing growth: Its social networking service attracted 255 million users per month in the first quarter, a 5.8 percent uptick from the previous quarter, and other metrics that measure user engagement were unimpressive.

“User growth serves as canary once more,” Evercore analyst Ken Sena wrote in a note Wednesday morning. “This quarter represents at least Twitter’s fourth in a row of stepped user growth deceleration, suggesting to us that some users are beginning to find alternatives elsewhere.”

Wells Fargo analyst Peter Stabler chimed in with his note: “User growth as reported remains troubling given what we believe is near universal consumer awareness of Twitter and unmatched levels of support from mainstream media,” he said.

“In short, we believe millions of consumers have sampled Twitter only to find a complex product with marginal relevance and value-a view we realize stands in sharp contrast to the fanatical loyalty the company enjoys among its core users,” Stabler later added.

CEO Dick Costolo defended his company in a Wednesday morning interview with Bloomberg Television, touting the ubiquity of its service.

“It’s already embedded into the fabric of the culture of not just the United States but the world. So in that sense, I very much think of it as a mainstream platform, and a durable and lasting platform upon which we can build a great business,” Costolo said.

There is also concern about upcoming lockup expirations, which will free for public trading hundreds of millions of Twitter shares currently held by employees and early investors. Twitter stated publicly earlier this month that Costolo, co-founders Jack Dorsey and Evan Williams, and venture firm Benchmark Capital will not sell their shares immediately, but that still leaves a bundle of new stock available for sale as of May 5.

“We estimate that about 275 million shares are attributed to holders that have disclosed they will not be sellers at the lockup, leaving about 200 million available for sale, which could pressure the stock,” SunTrust Robinson Humphrey analyst Rob Peck wrote in a note.